How is inflation measured?

Inflation in Norway is measured by Statistics Norway through constant monitoring of prices of a large number of goods and services that most of us regularly buy. The list of goods and services includes anything from everyday goods such as food and clothing to major purchases such as air tickets, mobile phones and cars.

Each month, Statistics Norway reports on how the prices of all these products have changed. The price information collected by Statistics Norway is weighted and aggregated in the consumer price index (CPI). Inflation over a given period is often described as a percentage change in the CPI compared with the corresponding period in the previous year. 

Why are there many different inflation measures?

Norges Bank uses the policy rate to, among other things, keep inflation low and stable over time. However, it takes time for changes to the policy rate to impact inflation. If changes in inflation are due to temporary factors, there is no reason to change the policy rate. We therefore try to avoid taking into account factors that only briefly affect inflation and focus instead on underlying inflation. 

Tax changes may be an example of such temporary factors. Inflation will be higher one year after a tax increase. In the year after that, inflation will fall back, even though the price level has become entrenched at a higher level. This is why tax changes are generally disregarded when assessing the inflation outlook. Norges Bank also disregards prices that are known to fluctuate a lot in order to determine what is often called underlying inflation.

There are multiple ways of measuring underlying inflation. One common measure is the consumer price index adjusted for tax changes and excluding energy products (CPI-ATE). Other measures also exist.